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Ottawa will move again to tighten mortgage rules – this time requiring stress tests for all insured loans – as part of a package of new measures designed to put the brakes on overheated housing markets.

The government will also close a federal tax loophole that has allowed non-residents to avoid taxes when they sell houses, as well as examine whether to implement a policy aimed at requiring lenders to take on more insurance risk.

“I want to make sure that we’re proactive in assessing and addressing the factors that could lead to excess risk,” federal Finance Minister Bill Morneau said Monday in Toronto – one of the most overheated housing markets in the country, along with Vancouver.

The moves are aimed at combating the risky effects of low interest rates, including high levels of household debt.

“Low interest rates have gradually changed the way both borrowers and lenders view debt and indebtedness in this country,” he said.

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“As these attitudes and behaviours have changed, some households began carrying high debt loads and pockets of risk have begun to emerge.”

Mortgage stress tests have so far only been required for borrowers who take on variable or fixed interest rates with terms less than five years. But as of Oct. 17, any borrower with an insured mortgage will have to qualify at the 5-year Bank of Canada fixed posted rate — currently 4.64 per cent.

Starting Nov. 30, mortgage insurance criteria for low loan-to-value ratio mortgages (80 per cent or less of the home’s value) will be as stringent as that for high loan-to-value insured mortgages (loans representing 80 per cent or more of the home’s value).

However, homeowners with an existing mortgage or renewing their mortgage will not be affected.

To address the speculation in Vancouver and Toronto real estate partly fuelled by overseas money, the government also announced that a capital gains tax exemption on the sale of a principal residence will now only apply to those who live in Canada the year the home is purchased.

The government also plans to hold consultations this fall on risk in housing finance – including whether it should implement a policy that would require mortgage lenders to assume a portion of losses on default loans. Currently, the risk falls onto taxpayers, who ultimately back insurers.

The Liberal government made addressing housing market risks one of its first moves after it was elected. Last December, the government raised the minimum down payment required on the portion of a home priced above $500,000 to 10 per cent from the current 5 per cent.

Monday’s announcement comes in the middle of a recently announced working group study involving all levels of government, whose analysis has not been completed.

Some observers questioned how much impact the new measures will have.

BMO chief economist Doug Porter said the capital gains tax measures are welcome and overdue. He believes a wave of foreign investment has been the driving factor behind a huge run-up in prices in Toronto and Vancouver over the past year.

However, he added, it’s unlikely that many foreign investors were attracted to the Canadian market primarily because of a tax exemption.

“It may dim the economic model for some of the home buying going on by non-residents, but I suspect that even if they are now subject to a capital gains tax there will still be robust demand,” he said.

Toronto-based Royal LePage realtor Shawn Zigelstein said he’s more concerned about whether the new mortgage qualification rules will put too much of a damper on the market.

“There are markets in Canada that are not as successful as the Toronto and Vancouver markets, so you’re going to suddenly start to affect those markets as well when you’re putting something like a stress test into place,” he said.

He also wondered why the new rules were presented before the government working group has accumulated and studied all of the data.

“That would be the big concern, that we don’t know what they’re going to do once they get all this other information,” he said.

The British Columbia government took the controversial step this summer of imposing a 15 per cent property tax on foreign buyers.

At Queen’s Park, Premier Kathleen Wynne said the provincial government is still looking at implementing measures at a more local level.

“Ontario's market is different than Vancouver's market and so we are going to move ahead in a way that is appropriate for Ontario,” she said.

“My intention would be to move sooner rather than later to put in place initiatives that would be appropriate for Ontario.”

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